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Wednesday, April 16, 2014

First Time Buyers – What should I know about HUD houses?

I saw a home with a sign that said it is a HUD property,
what’s that all about?

First of all, what is a HUD home? HUD stands for the U.S.
Department of Housing and Urban

Development, a branch of the federal
government. From the HUD Web Site comes this answer - A HUD home is a 1-to-4 unit residential property acquired by HUD as a
result of a foreclosure action on an FHA-insured mortgage. HUD becomes the
property owner and offers it for sale to recover the loss on the foreclosure
claim.

So it is a home, duplex or 4-plex that was foreclosed. Maybe
there was an attempt to do a short-sale and that didn’t work out. Maybe the
lender even tries to sell it in foreclosure and failed. For whatever reason the
investor has taken advantage of the FHA guarantee on the original loan and
given the property to HUD.

HUD then assigns these properties out to local real
estate brokers for sale to the public.

HUD homes are sold in “As Is” condition, which can be
anything to move-in ready (rare) to needs lots of work (common). Again, from
the HUD Web site: HUD does not warrant the condition of its properties and will
not pay for the correction of defects or repairs. Since the new owner will be
responsible for making needed repairs, HUD strongly urges every potential
homebuyer to get a professional
inspection prior to submitting an offer to purchase.

Many HUD houses are priced
very low, so a great number of them are purchased for cash; however it is
possible to get a mortgage to purchase a HUD home. There are special programs
available from lenders in case the home needs extensive repairs. The HUD site
explains some options in that case:

If you are interested in acquiring a HUD Home
that is in need of repair, you may be interested in applying for an FHA
203(k) Rehabilitation Loan. When a homebuyer wants to purchase a house in
need of repair or modernization, the homebuyer usually has to obtain financing
first to purchase the dwelling; additional financing to do the rehabilitation
construction; and a permanent mortgage when the work is completed to pay off
the interim loans with a permanent mortgage. Often the interim financing (the
acquisition and construction loans) involves relatively high interest rates and
short amortization periods. The Section 203(k) program was designed to address
this situation. The borrower can get just one mortgage loan, at a long-term
fixed (or adjustable) rate, to finance both the acquisition and the
rehabilitation of the property. Click
here for more information about FHA's 203(k)
Rehabilitation Loan Program.

Your lender should be able
to explain to you the financing options for a HUD home that they have
available. There are programs available through FHA and you may qualify for
one. The home has to qualify too; so check with your lender on that. There are
also special programs available through FHA for designated members of the
community to get an even better deal on these homes. Again from the HUD site:

FHA REO properties located in designated Revitalization
Areas are available at a reduced sales price to
law enforcement officers, teachers, firefighters, emergency medical
technicians, nonprofits and local governments. Read more about these Good
Neighbor Initiatives. You can also view maps of REO properties
and special programs such as Revitalization Areas with HUD’s Single
Family Home Locator.

Buying a HUD home is a slightly different process and your
Realtor® should know how to handle that. Basically when a home is made
available through HUD it is placed on the HUD Web site the HUD Home Store. It is at that site where you search for HUD
homes that are for sale in your area and can obtain more information about the
homes. Once you have found a home on that site that you think you will like,
you can arrange through your Realtor to go see it. If you like it you can make
a bid through your Realtor. Only Realtors are authorized to submit bids through
the HUD Home Store site.

Bidders who are individuals who intend to live in the home
(you will have to sign a sworn affidavit to that affect) are given a special 2
week period of exclusivity at the beginning of the homes listing for bidding
and are considered first. After that,
investors may bid on the house. Any and
all bids from individuals are evaluated prior to opening the bidding to
investors. Usually the best and final bids are called for from the bidders
before moving into that second stage.

It doesn’t cost anything to make a HUD bid; however, if your
bid is accepted you will need to write the check for your earnest money within
24-48 hours of the acceptance of your bid, so be ready with that. You will also
have a specified amount of time to get the deal to a closing, so be ready with
a pre-approval and have some contractors lined up to go in and give you bids on
repair work, so you can get a good idea of how much you really need.

HUD reserves the right to reject all of the bids, if they
are considered to be too low or the bidder cannot prove that they actually can
complete the deal. You may have to wait a week or two to find out if your bid
was accepted or rejected. If it was rejected you may be able to bid again, if
no other bids were accepted; however, by the time that occurs you will probably
be bidding against investors; so make your first shot your best shot, if you
really want the house.

The bottom line for HUD homes is that the process, while
slightly different in some ways, is very much like buying any other house and your
Realtor should be able to facilitate the differences of the process for you. You can go to the HUD site for more information by clicking here. I would add
that the home inspection process is so much more critical with these homes,
since so many of the have suffered abuse and are n need of serious repairs.
These are not your “DIY weekend with a paintbrush” properties; so exercise
extra caution when evaluating the property.

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About Me

I'm a pre-Baby Boomer who just happens to be into technology and the Web. I created and maintain 6 Web sites - three for real estate (see above for links), one for the Milford Historical Society, one for teh Milford Car Show and one for my church. I've been a Realtor for a little over 10 years.
Prior to selling real estate, I had a 30 year career selling and marketing computers and related software and services for a variety of IT industry companies, many of them now long gone - Burroughs, Digital Equipment, Compaq, HP, EMC and SGI. I still keep up with what's happening in that space.
Now, I focus upon real estate, with a specialty in historic houses in and around the Milford, Michigan area. I'm also focusing more andmore on the needs of aging home buyers, since that is a category into which I fall myself.
I hope that you enjoy reading my blog as much as I enjoy creating it. Feel free to let me know your opinions or to add your comments to mine. I also have another blog - normsmilfordblog.com that is a bit more unpredictable in its content. Try it if you haven't already.I'm also on activeRain, Facebook, Linked In and Twitter.